Royalty Based Financing Agreement for Germany

Royalty Based Financing Agreement Template for Germany

A Royalty Based Financing Agreement under German law is a specialized financing instrument where an investor provides capital to a company in exchange for a percentage of the company's future revenue or gross profits. This agreement, governed by German civil and commercial law, establishes the terms of investment, methodology for calculating and paying royalties, reporting requirements, and investor protections. It includes specific provisions to comply with German banking regulations and tax requirements, while providing flexibility in financing structure compared to traditional debt or equity instruments. The agreement details payment mechanics, information rights, and circumstances for adjustment or termination of the royalty payments.

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What is a Royalty Based Financing Agreement?

The Royalty Based Financing Agreement serves as an alternative financing solution for companies seeking growth capital without diluting equity or taking on traditional debt. This document type is particularly relevant when a company has established revenue streams but may not be suitable for conventional bank financing or equity investment. Under German law, this agreement structure provides flexibility while ensuring compliance with relevant banking, tax, and commercial regulations. The document typically includes detailed provisions for calculating royalty payments based on revenue or gross profits, reporting requirements, and investor protections. This financing model is especially attractive for companies with predictable revenue streams who want to maintain control while accessing growth capital.

What sections should be included in a Royalty Based Financing Agreement?

1. Parties: Identification of the financing party and the company receiving financing

2. Background: Context of the agreement and brief description of the business and financing purpose

3. Definitions: Definitions of key terms used throughout the agreement

4. Investment Amount: Details of the financing amount and payment terms

5. Royalty Payments: Calculation methodology, payment frequency, and basis for royalty payments

6. Calculation of Revenue: Definition and methodology for calculating the revenue base for royalty payments

7. Payment Terms: Specific mechanics of payments, including timing, currency, and payment methods

8. Reporting Requirements: Financial reporting obligations, frequency, and content requirements

9. Information Rights: Investor's rights to company information and financial records

10. Representations and Warranties: Standard company representations and compliance with laws

11. Company Covenants: Ongoing obligations of the company during the agreement term

12. Events of Default: Circumstances constituting default and consequences

13. Term and Termination: Duration of the agreement and termination provisions

14. Confidentiality: Protection of confidential information exchanged

15. Governing Law and Jurisdiction: Application of German law and jurisdiction for disputes

16. Miscellaneous: Standard boilerplate provisions including notices, amendments, and assignment

What sections are optional to include in a Royalty Based Financing Agreement?

1. Security: Include when the financing is secured by company assets

2. Intellectual Property Rights: Include when IP is relevant to revenue generation or security

3. Change of Control: Include when restrictions on ownership changes are required

4. Minimum Payments: Include when establishing a floor for royalty payments

5. Maximum Cap: Include when establishing a ceiling for total royalty payments

6. Buy-out Options: Include when allowing early termination through lump-sum payment

7. Parent Company Guarantee: Include when parent company guarantee is required

8. Step-in Rights: Include for strategic investments requiring operational control rights

9. Regulatory Compliance: Include when specific regulatory requirements apply to the financing

What schedules should be included in a Royalty Based Financing Agreement?

1. Schedule 1 - Calculation Examples: Detailed examples of royalty calculations

2. Schedule 2 - Reporting Template: Standard format for periodic financial reporting

3. Schedule 3 - Business Plan: Company's business plan and financial projections

4. Schedule 4 - Initial Due Diligence Results: Summary of due diligence findings

5. Schedule 5 - Existing Indebtedness: List of company's existing financial obligations

6. Appendix A - Bank Account Details: Payment account information for both parties

7. Appendix B - Authorized Signatories: List of persons authorized to act under the agreement

8. Appendix C - Compliance Certificates: Templates for periodic compliance certification

Authors

Alex Denne

Head of Growth (Open Source Law) @ Genie AI | 3 x UCL-Certified in Contract Law & Drafting | 4+ Years Managing 1M+ Legal Documents | Serial Founder & Legal AI Author

Jurisdiction

Germany

Publisher

Genie AI

Document Type

Financing Agreement

Cost

Free to use
Relevant legal definitions
Clauses
Relevant Industries

Software & Technology

E-commerce

Digital Services

Healthcare

Manufacturing

Consumer Products

Professional Services

Media & Entertainment

Renewable Energy

Biotechnology

Retail

Food & Beverage

Relevant Teams

Legal

Finance

Treasury

Corporate Development

Strategy

Tax

Compliance

Risk Management

Business Development

Accounting

Relevant Roles

Chief Financial Officer

Finance Director

Chief Executive Officer

Legal Counsel

Investment Manager

Corporate Lawyer

Financial Controller

Treasury Manager

Business Development Director

Commercial Director

Head of Strategy

Risk Manager

Compliance Officer

Investment Analyst

Industries
Teams

Employer, Employee, Start Date, Job Title, Department, Location, Probationary Period, Notice Period, Salary, Overtime, Vacation Pay, Statutory Holidays, Benefits, Bonus, Expenses, Working Hours, Rest Breaks,  Leaves of Absence, Confidentiality, Intellectual Property, Non-Solicitation, Non-Competition, Code of Conduct, Termination,  Severance Pay, Governing Law, Entire Agreemen

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